Congress is preparing to finalize a health care bill for both chambers to consider. The purpose of healthcare reform is to increase the number of insured, improve the level of health care and reduce health care spending. Although there are many disputes in the health care debate, two issues seem clear. First, integrated health care systems, which combine payment and health care delivery, are superior in delivering high quality health care and controlling health care costs. Second, traditional health insurers that focus solely on payment dominate health insurance markets, resulting in escalating costs, higher premiums and the chronic problems of the uninsured.

Yet rather than enhancing the ability of integrated health care systems to compete, the Senate bill handicaps these firms by subjecting them to a disproportionate tax. In addition, the Senate’s so-called alternative to the public option, which provides for privately run plans operating nationally under the supervision of the federal Office of Personnel Management, further advantages existing large insurers and hampers the ability of smaller integrated health care systems to participate in the new health insurance exchanges. These provisions undermine the ability of integrated health care delivery systems to provide a crucial alternative in the market for health insurance.

Both of these provisions undermine the ultimate goals of health care reform and will exacerbate rather than solve the current problems. Congress must reform both of these provisions to strengthen the ability of reform to succeed.

The Critical Potential Role Of Integrated Health Care Systems

One of the widely acknowledged goals of health reform legislation is to reduce health care spending. Both the House and Senate bills provide funding and incentives for health care systems to contain costs through innovative payment and delivery methods. One thing we have learned through the health care debate is the fact that integrated health care systems — such as Kaiser, Mayo, Geisinger and HealthPartners — represent an innovative and effective way to provide high-quality care while curbing spending. Integrated health care systems maintain an active program of coordination across primary and specialty care, pharmacy and other providers — far more than just bill-paying. These systems directly address many of the problems that plague American health care today, especially the inherent difficulty of limiting spending in a fee-for-service system. By merging the processes of paying for and delivering health care, integrated delivery systems achieve significant efficiencies and deliver higher quality care. There seems little dispute that integrated health care systems are a crucial answer to solving the health care crisis by integrating cost control with the delivery of high quality health care.

The Broken Traditional Health Insurance Model

There also seems to be little dispute that the fee-for-service insurance model is broken. As documented in numerous reports and Congressional hearings, the majority of health insurance markets are dominated by one or two firms. This lack of competition has resulted in rapidly rising premiums, higher costs and an increasing number of uninsured. The traditional health insurers focus solely on bill payment, not coordination of care, and on returns to shareholders rather than patient health. This has become undeniably clear over the course of the health care debate. Congress has listened to dozens of consumers who suffered from egregious and deceptive practices by the major health insurers, whose profits have skyrocketed over the past several years.

Most of these insurers focus heavily on Administrative Service Only (ASO) business. They essentially act as claims processors for large, self-insured employers. Because the health insurer in this case bears no risk — the employer covers the cost of each claim — ASOs have no incentive to contain costs, coordinate care or achieve the efficiencies of integrated health care systems. Their means of cutting costs are simply profit-oriented: they tend to have low medical-loss ratios and, because they are largely unregulated, they frequently engage in the very consumer protection violations that legislators have sought to curtail with health care reform.

One would expect after recent scrutiny of the broken market for traditional health insurance that Congress would establish incentives for the growth of integrated delivery systems. Indeed, both chambers’ current bills do that to a modest extent – both bills provide funding for pilot programs that promote coordination of care and emphasize prevention in a fashion similar to these integrated systems. For many of the uninsured and under-insured individuals who stand to gain the most from health reform, these health systems offer crucial services. Those patients whose poor health precluded them from obtaining insurance before reform will benefit immensely from coordination of care. Consider, for example, an individual with two or more of the chronic conditions plaguing America today, like diabetes, asthma or heart disease. Each condition requires frequent doctors’ visits, adherence to a drug regimen and regular monitoring; the potential for complications requires added attention. Integrated delivery systems promise more effective and efficient treatment for these patients, who would otherwise be left to navigate the labyrinth of health care on their own.

The Misguided Approach in the Senate Bill

While both the House and Senate bills provide some funding and programs to encourage the growth of integrated delivery systems, the Senate bill severely hampers the ability of integrated health care systems to compete by placing most of the new “tax burden” on these systems, while placing them at a disadvantage in participating in the exchanges. The net result will be to quash the innovation, efficiency and quality of care that health care so desperately needs, all while encouraging the growth of volume-driven fee-for-service health insurers.

How Does This Misguided Result Occur?

First, the Senate bill contains a tax that overwhelmingly favors the major insurance companies with ASO business and will further entrench them in the market for health insurance, while putting integrated health care systems at a significant disadvantage. The large tax — set to equal almost $70 billion over ten years — will fall disproportionately on smaller insurers, including integrated delivery systems, while major insurers with substantial ASO business will enjoy an exemption for their ASO business. This makes no sense. The tax system should encourage the types of integrated care that have demonstrated the ability to reduce health care costs and improve health care.

Other seemingly innocuous exemptions will only serve to give the traditional insurers more of an advantage. For example, many of these same large insurers provide Medigap, the Medicare supplemental insurance. They will enjoy an exemption for those revenues, too. In sum, this means that the five largest for-profit health insurers will bear only about 20% of this massive tax, while the smaller local health plans and regional insurers will carry the load.

Consumers and small businesses will suffer from this perverse tax system. Those insurers with the worst records of compliance and the lowest medical- loss ratios will pay the least, while innovative and effective alternatives, like integrated health care delivery systems, will be disproportionately burdened by this tax. Moreover, ASO business is largely unregulated. And while large businesses can afford to self-insure, small businesses rarely use ASOs. As a result, small businesses are likely to bear a disproportionate share of this tax burden.

Smaller insurers are inherently more vulnerable relative to their massive, national competitors. There’s no reason to give these national insurers, who often enjoy monopolies or near-monopolies in local markets, tax breaks and other favorable treatment. We run the risk of entirely crippling the smaller insurers, forcing them to shut down or merge with major national plans, leaving consumers with even fewer choices than when we began the health reform process.

Second, the so-called alternative to the public option gives a huge advantage to already-dominant national insurers. The newly proposed plans, privately run but overseen by OPM, which currently manages the Federal Employee Health Benefit program, would need to operate as multi-state plans, in effect weeding out anything but the traditional health insurers with a national scope. This will most likely prevent integrated delivery systems from participating, as they tend to operate best on a regional level where coordination of care is truly possible. Rather than providing a positive alternative to the existing major insurers, the OPM plan would simply reinforce their dominance. The only insurers with a national presence tend to enjoy local monopolies, a problem that members of Congress have already identified and sought to remedy. Favoring the major insurers in a national plan will simply exacerbate the problem, entrenching dominant insurers in markets across the country rather than promoting genuine competition.

The effects of these provisions will be far-reaching in ways we cannot anticipate entirely. The ASO model of health insurance will gain a huge advantage from its tax status and those insurers’ ability to participate as a national plan, all while integrated health care systems are unnecessarily burdened. This runs counter to two goals of health care reform on which Congress reached some level of consensus: to promote innovation and competition, and to contain costs. To see real change on these fronts, we absolutely should not reward the status quo.

A Better S0lution

How can we approach both the tax and the “public option” issues without severely handicapping integrated health care delivery systems?

First, the tax should be more equitably spread across the various insurers, and the most profitable insurers – those five national insurers who make 75% of the industry’s profits – should certainly pay more than 25% of the tax. Eliminating the preferential exemptions for ASO fees and Medigap would be good first steps in achieving these goals.

Second, the guidelines for those plans who can participate in the OPM-managed program should be revised to allow for a greater diversity of insurers. At this point, it seems that only a handful of national insurers would feasibly be able to provide these plans; though they would be non-profit, we would largely be limited to the Blues, which use the traditional fee-for-service model. If Congress can allow for more flexibility, a number of regional insurers with innovative payment and delivery methods could participate, too. If integrated delivery systems from across the country chose to participate, someone living in any state in the country might have that option through the national exchange. Not only would this help promote more cost-effective insurance options, but it would surely foster greater competition on the national level.

Conclusion

Meaningful reform is an extraordinarily challenging process. But in developing the exchanges and creating solutions for financing, Congress should return to the evidence that is abundantly clear from months of scrutiny. Integrated health care systems are a critical part of the solution to our chronic health care problems: efforts at reform must preserve their opportunities to grow and compete. We need a level playing field, not one that favors the problem and handicaps the solution.

Don’t underestimate the power of markets. If care integration (per your description) is notably efficient and effective, and demanded by employers, the ASO market will find a way to respond. It will become a competitive necessity. I’m sure of this, because I’ve seen it happen before, in the same markets.

In the 1985-1995 time frame, there was a rapid evolution of services offered by ASO vendors in the health insurance claims paymant market. For instance, early in the ’80s, services such as PPO, preadmission certification, case management, utilization data reporting, and plan structures supportive of outpatient surgery and second opinions were nearly unknown. But by the late ’90s they were nearly universal. Those changes didn’t happen because the ASO industry suddenly became proactively creative. Rather, it happened because their client base (i.e., self-insured employers and union group) were newly armed with data showing that much of the medical care they were paying for was inefficient, ineffective, medically inappropriate or unecessary, or frankly fraudulent.

That data (at least in actionable form) didn’t come from the ASO vendors, or other health insurers, or the government. It came from private consulting firms (most notably, The Health Data Institute, where I worked) that developed innovative techniques for the analysis of claims data, thereby providing proof of widespread presence of problems that had long been suspected – but that needed to be proven with respect to a particular employed population before the employer organization felt able to respond by demanding solutions. In order to become actionable, it was critical that identified problems were both financially important and feasibly addressed by plan design or management interventions.

As it became clear (through finding similar results for multiple large employers) that the newly developed information was actionable, employers began to act. That is, they presented the evidence to the ASO vendor market, and began to direct their business toward those vendors willing to try to solve the problems. The resulting changes were rapid and widespread, quickly defining a new market norm.

There’s no reason to suspect that this dynamic is defunct. Vendors will respond to their markets, moving care integration more into the mainstream, if demanded by clients. The question is, where the market demand will come from. In the prior example, it came from employers armed with new sorts of data.

I strongly suspect that, in the present instance, such data is missing. That is, if employers had the data to support a demand for more care integrative services, they’d make such demands on the market and the market would respond. But, they don’t have the data. The data might be missing because care integration is not believed to be financially rewarding or administratively feasible. But, it might also be missing because the data just isn’t now good enough to make the case. The latter is what I personally believe.

Thus, the question evolves. Perhaps as before, the medical utilization analytic industry will develop the necessary data tools, funded by private clients. Personally, I don’t think so; this would be a massive undertaking, and few (if any) firms would individually benefit enough to be worth the investment. So, there may be a government role here, in terms of tool development. There may be a government role anyway, since I suspect that the necessary substrate for these tools will prove to be more than what can be mined from existing claims data resources, and some new sorts of data – data that will only get collected if required by regulation – will be needed. Or, perhaps there’s something government can do in other ways – i.e., regulation that substitutes for data-supported market demand – to jump-start the sort of development you (and many others) believe would be beneficial to all

David
Would you be so kind as to elaborate a bit on the profits MCOs make on an ASO contract ?

Essentially, what is the value of the administrative function provided when the insurers are acting as a conduit for large, self-insured employers (when underwriting is not an issue and they are not collecting premiums) versus when they are overseeing an entire product and bearing full risk?

I know the answer is not black or white simple, but given the ASO component aspect of their business is significant, the distinction is important. I have never seen this discussed .

Thanks
Brad
NY, NY

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